2016 (8) TMI 679 - AT - Income Tax

Addition on advance from customer as unexplained cash credit u/s 68 - Held that - As rightly contended by the ld. DR there was complete failure on the part of the assessee to furnish any evidence either before AO or before CIT(A) and even before the Tribunal. The request for a remand is made without any basis or evidence being shown to the Tribunal to justify the order of remand. We have already seen that the AO afforded as many as 8 opportunities in the course of assessment proceedings. In these circumstances we are of the view that the request made on behalf of the assesee cannot be accepted. On the evidence on record, we are of the view that the conclusions of the CIT(A) are just and proper and calls for no interference - Decided against assessee. Addition as unsecured loan as un explained cash credit u/s 68 - Held that - As far as the loan received from Shri Hakimuddin Behmat is concerned the position remains the same that even today confirmation of having given the loan has not been filed. It is therefore not possible to remand the issue on the presumption that Mr.Hakimuddin Behmat would file the confirmation to enable to the AO to make proper investigation. The request made by the ld. Counsel for the assessee in this regard is therefore rejected. As far as the cash deposits in the bank account of S.D.Dugar and M.K.Dugar & Sons HUF is concerned, we are of the view that the AO ought to have summoned and examined those two persons with regard to the cash deposits in their bank account prior to issue of cheques to the assessee. We therefore accept the prayer for remanding the issue to the AO in so far as the two creditors are concerned. The AO will examine those two aforesaid parties and decide the issue in accordance with law. Expenditure towards interest on cash credit loan of SBI - Held that - From the details given to us it appears that the assessee had deposited a sum of ₹ 26,00,000/- in his bank account in which the credit facility in question was availed by the assessee. There are two questions that need to be answered before accepting the claim of the assessee namely what is the outstanding amount of interest and whether the sum of ₹ 26,00,000/- paid would cover the interest of ₹ 8,86,927/- which was claimed as deduction by the assessee in computing its total income. The second aspect that needs to be seen is as whether this deposit of ₹ 26,00,000/- was prior to the accrual of interest on the loan amount in question in which case the benefit of payment of ₹ 26,00,000/- cannot be attributed to the repayment of interest of ₹ 8,86,927/-. We are of the view that these two issues have to be re-examined by the AO and for this purpose the order of CIT(A) on this issue is set aside and the AO is directed to examine these in accordance with law after affording the assessee opportunity of having heard.

Summary

Issues Involved:
1. Addition of ?31,42,138 as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Addition of ?10,00,000 as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
3. Disallowance of expenditure towards interest on cash credit loan of ?8,86,927 under Section 43B of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of ?31,42,138 as Unexplained Cash Credit

The assessee, a partnership firm engaged in trading and exports, received an advance of ?31,42,138 from two customers: ?22,39,728 from A.G.S.Sen Trading Ltd. and ?9,02,410 from Al-Burhani International. The Assessing Officer (AO) requested the assessee to provide confirmations, party ledgers, IT returns, and other details to substantiate the claim. Despite eight opportunities, the assessee failed to comply, leading the AO to add the amount as unexplained credit under Section 68.

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee to present evidence, which was examined by the AO in remand proceedings. The AO reported that the assessee only provided its bank statement without evidence of the creditors' identity, creditworthiness, and genuineness of the transactions. Consequently, CIT(A) upheld the AO's addition.

Before the Tribunal, the assessee argued that the advances were adjusted against supplies in subsequent financial years and sought another opportunity to present evidence. However, the Tribunal noted the assessee's repeated failure to provide evidence and dismissed the request for remand, affirming CIT(A)'s decision.

Issue 2: Addition of ?10,00,000 as Unexplained Cash Credit

The assessee received unsecured loans totaling ?10,00,000 from three parties: ?75,000 from S.D.Dugar, ?8,00,000 from Hakimuddin Behmat, and ?1,25,000 from M.K.Dugar & Sons HUF. The AO requested confirmations and evidence of genuineness and creditworthiness but received inadequate responses after eight opportunities, leading to the addition under Section 68.

Before CIT(A), the assessee submitted partial evidence, including bank statements and loan confirmations for S.D.Dugar and M.K.Dugar & Sons HUF. However, Hakimuddin Behmat did not cooperate due to a family dispute. The AO's remand report indicated that while S.D.Dugar and M.K.Dugar & Sons HUF confirmed the loans, they did not provide cash flow statements, and there were suspicious cash deposits before issuing cheques to the assessee. Consequently, CIT(A) upheld the addition.

The Tribunal considered the assessee's plea for another opportunity, particularly regarding Hakimuddin Behmat, but rejected it due to the lack of confirmation. However, the Tribunal remanded the issue concerning S.D.Dugar and M.K.Dugar & Sons HUF for further examination by the AO, directing the AO to summon and investigate these creditors.

Issue 3: Disallowance of Interest on Cash Credit Loan of ?8,86,927

The AO disallowed the interest deduction of ?8,86,927 on a cash credit loan from State Bank of India under Section 43B(e), which mandates actual payment for deduction eligibility. The AO noted that the assessee did not provide payment evidence and referred to a settlement in the subsequent year where the assessee benefited by ?3,48,806. The AO added the interest amount to the total income.

CIT(A) upheld the AO's decision. Before the Tribunal, the assessee presented bank transaction details showing a deposit of ?26,00,000 in the cash credit account, arguing it covered the interest claimed. The Tribunal identified two key questions: the outstanding interest amount and whether the ?26,00,000 deposit covered the interest. The Tribunal remanded the issue to the AO for re-examination, directing a detailed review of the payments and their timing.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific issues remanded for further examination by the AO. The Tribunal upheld the additions where the assessee failed to provide sufficient evidence and remanded others for further scrutiny.